‘Forget the hunt for rewards and seek the lowest possible interest rate’: Credit card rates near high not seen since 1996 – as Fed plans further rate hikes

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By Andrew Keshner

Credit card APRs are directly influenced by the Federal Reserve policy rate

Average interest rates on new credit card deals are approaching a point not seen in nearly three decades, reflecting the real effects of Federal Reserve rate hikes that have been occurring since the start of 2022 and appear doomed. to continue.

The annual percentage rate (APR) was 17.96% for new card offerings on Wednesday, according to aggregate data from Bankrate.com. That beats a recent record of 17.87% set in April 2019 and is the highest on record since January 1996, he said.

At that time, the average APR reached 18.12%, said Ted Rossman, senior industry analyst at Bankrate. Bankrate’s data comes from a survey of about 130 credit card offers from 50 of the nation’s largest credit card issuers, he noted.

The data comes less than a week after Federal Reserve Chairman Jerome Powell made it clear that he and other central bankers were ready to raise the federal funds rate to tame runaway inflation. .

Even if it means “a bit of pain”, he added.

The Fed has already pushed the key interest rate from near 0% to the 2.25% to 2.5% range, and the question is how much further the rate will rise

The federal funds rate is essential for many sectors of the economy, but especially for credit cards.

“Almost all credit cards have variable rates that track the prime rate, which is typically three percentage points above the federal funds rate set by the Federal Reserve. So there’s a direct transmission from Fed actions to credit card holders.” noted Rossman.

Borrowing costs add up for people who carry a balance from month to month, he noted. A person making minimum payments on $5,000 for a credit card with 16% APR would pay off the amount in 184 months. They would also pay $5,406 in interest only for the time it takes to repay the principal amount, Rossman said.

At an APR of 18.25%, it would take 189 months to pay off the debt, plus more than $6,200 in incurred interest, he said.

Americans racked up more credit card debt in the second quarter of 2022, according to the Federal Reserve Bank of New York. They added $46 billion more from the first quarter and year-over-year growth was 13%, according to the researchers. It’s the largest annualized increase in more than two decades, they noted.

Overall, Americans had more than $890 billion in credit card debt in the second quarter, according to New York Fed data.

The best plan would be to pay balances in full each month, Rossman said. But that might not be possible under the circumstances, he said. In this case, “forget the hunt for rewards and seek the lowest possible interest rate. There are 0% balance transfer offers that last up to 21 months.

-Andrew Keshner

 

(END) Dow Jones Newswire

09-03-22 1102ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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